An Artificial Intelligence Approach to the Role of Exports in the Economic Development of Malaysia

By Shaaf, Mohomad; Ahmadi, S. Ali | Atlantic Economic Journal, December 1999 | Go to article overview

An Artificial Intelligence Approach to the Role of Exports in the Economic Development of Malaysia


Shaaf, Mohomad, Ahmadi, S. Ali, Atlantic Economic Journal


S. ALI AHMADI [*]

Over the past three decades, Malaysia has shown impressive economic growth, placing this country in a group of fast-growing Southeast Asian economies and among the top performing economies in the world. This achievement has been consciously undertaken through export expansion strategies and by attracting foreign investments. Using an artificial intelligence approach and data from 1966 to 1994, the purpose of this study is to investigate the role of exports in the economic growth and development of Malaysia. The results of this new methodology confirm the earlier findings that exports strongly contributed to the economic growth and development of Malaysia. The results of the model simulation for the in-sample and out-of-sample data show that the model's forecast is better than that of the regression approach.

Introduction

The countries of the Association of Southeast Asian Nations (except Singapore which is already a newly industrialized country (NIC)) represent the third rung of the ladder in Asia's development process, after Japan and the NICs. Except for the Philippines, these countries have been noted by the World Bank [1993] for their unique performance since the 1960s. The success story of East Asia's NICs follows the impressive economic performance of countries of the Association of Southeast Asian Nations. These countries are also called near-NICs or the next-tier NICs such as Malaysia, Thailand, and Indonesia. All these countries consciously undertook outward-looking strategies when expanding their exports and attracting foreign investments, especially since the early 1980s. They generated provocative discussions on whether their models of growth could be generalized or emulated. Some economists (for example, Cline [1982]) have warned against applying the economic law of fallacy of composition. Others (such as Ranis [1987]) argue that the fallacy of composition applies only when the world trade volume is fixed, and they assert that other developing countries could learn vital lessons from these countries' experiences. As Anne Krueger [1984] points out, these countries:

"have demonstrated that poor societies can substantially transform their economies and alter their prospects. They have also demonstrated that rapid growth can be consistent with rapidly rising living standards for the poorest segment. As such their experience provides a basis for optimism about future prospects of developing areas where authorities are committed to rising living standards of the population" [p.405].

The NICs and near-NICs were distinguished by relatively accelerated rates of structural change both internally and in their export shares. It is important to identify causal variables that could explain the reasons for the unusual growth in gross domestic product (GDP) and high export performance of these countries as compared with other transitional and nontransitional economies.

Malaysia is among those Southeast Asian countries who made impressive advances by relying on export-led growth strategy. Between the mid-1960s until the early 1990s, the Malaysian economy grew on average by 6.75 percent per year with an annual per capita GDP growth of 4 percent. The ratio of exports to GDP for Malaysia rose from 37 percent in 1970 to 70 percent in 1983 and to more than 80 percent in 1994. This ratio for 1966 to 1994 is shown in Figure 1.

Malaysia is noteworthy when studying dynamic trade and development performance because of its unusually rapid industrialization and its highly dynamic export growth, especially exports of manufactured goods. As early as the mid-1980s, Bradford [1987] notes that "Malaysia...was of consequence in most studies as (an) example of (a) potential

NIC" [p. 300]. Since then, Malaysia's economic growth has been even more impressive [Cho, 1990; International Monetary Fund, 1995; World Bank, 1994]. Indeed, its performance has gone beyond what is naturally expected of an economy following changes in factor endowments. …

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